The big shoe company are planning production for next year. The selling price is $30 per pair, raw materials cost $7.50 and labor $5.50 per pair. Fixed costs are $150,000. Planned production for next year is 12,500 pairs. Required a) Calculate the marginal cost per pair; the absorption cost per pair; the break even point and a break even graph in steps of 100 pairs. The profit or loss is 12,500 pairs are sold. b) Flashsale offers to buy 2,500 pairs of boots at $20 a pair. This is within capacity and fixed costs will stay the same. Please advise the management whether or not to accept the order. c) A manufacturer in Slaka has offered to make the boots for $20 a pair up to 10,000 pairs and $15 a pair above this level. Big shoe would stop production and act as distributers. Fixed costs would fall to $50,000 every year. Advise management of the financial consequences of accepting this offer d) What other issues apart from finance does the Big Shoes Company need to consider?
The big shoe company are planning production for next year. The selling price is $30 per pair, raw materials cost $7.50 and labor $5.50 per pair. Fixed costs are $150,000. Planned production for next year is 12,500 pairs. Required a) Calculate the marginal cost per pair; the absorption cost per pair; the break even point and a break even graph in steps of 100 pairs. The profit or loss is 12,500 pairs are sold. b) Flashsale offers to buy 2,500 pairs of boots at $20 a pair. This is within capacity and fixed costs will stay the same. Please advise the management whether or not to accept the order. c) A manufacturer in Slaka has offered to make the boots for $20 a pair up to 10,000 pairs and $15 a pair above this level. Big shoe would stop production and act as distributers. Fixed costs would fall to $50,000 every year. Advise management of the financial consequences of accepting this offer d) What other issues apart from finance does the Big Shoes Company need to consider?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Transcribed Image Text:The big shoe company are planning production for next year. The selling price is $30
per pair, raw materials cost $7.50 and labor $5.50 per pair. Fixed costs are
$150,000. Planned production for next year is 12,500 pairs.
Required
a) Calculate the marginal cost per pair; the absorption cost per pair; the break
even point and a break even graph in steps of 100 pairs. The profit or loss is
12,500 pairs are sold.
b) Flashsale offers to buy 2,500 pairs of boots at $20 a pair. This is within
capacity and fixed costs will stay the same. Please advise the management
whether or not to accept the order.
c) A manufacturer in Slaka has offered to make the boots for $20 a pair up to
10,000 pairs and $15 a pair above this level. Big shoe would stop production
and act as distributers. Fixed costs would fall to $50,000 every year. Advise
management of the financial consequences of accepting this offer
d) What other issues apart from finance does the Big Shoes Company need to
consider?
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